Insurance News

P&C insurers solid despite lower profits

Posted on: September 2, 2010

Property-and-casualty insurance companies are seeing leaner profits because of recently high catastrophe losses, but they continue to have solid capital positions, Moody’s Investors Service said Monday.

Moody’s said second-quarter profits for publicly traded P&C insurers were generally lower than a year ago because of losses from hailstorms, tornadoes and flooding in the Midwest and South.

Profit margins from insurance underwriting were hurt by competition in the commercial P&C market, and by the slow economy, Moody’s analyst Ben Goldberg said. Net written premiums were flat, on the whole, compared with last year’s second quarter.

But the companies have nevertheless managed to build up larger financial reserves, Moody’s said.

Insurers’ equity capital rose an average 5 percent during the first half of this year. Moody’s attributed that gain to rebounding investments and profitability compared with the first six months of last year.

However, those gains were offset by ongoing share buybacks, which rose almost fivefold over the year-ago period. The increased share repurchase activity was driven by continuing profitability, improved capital positions, and limited growth prospects in a slowly recovering economy.

Investment losses declined from extreme levels in much of 2008 and 2009.

“The majority of P&C carriers do not have sizable exposures to problematic asset classes such as real estate-related investments, where risks remain elevated,” Moody’s analyst Bruce Ballentine said.

On average, 25 percent of P&C insurers’ investment portfolios are in municipal bonds, and the portfolios generally are of high quality, Moody’s said.

©2010 Bloomberg L.P. All Rights Reserved.

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